Progress | Centre-left Labour politics

Doctrines and nurses

Don’t be afraid of markets, says Julian Le Grand

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I don’t want to call in the violins, but progressives who advocate the use of markets in public service delivery have a hard time. They face an unrelenting barrage of criticism from all parts of the left, many of whom are uneasy with a pro-market stance on public services.

The depth of the emotions that the issue triggers is not always easy to understand – especially since many other European countries, whose public services are often held up as models
by the critics, rely heavily and uncontroversially on private or non-profit provision. In France, 29 percent of publicly funded hospital beds, for instance, are in private hospitals, with many of the rest non-profits; in Germany, half are non-profit or private; in Belgium and the Netherlands, most hospitals are private.

Part of the hostility comes from a confusion of finance with delivery. The centre-left advocates of private or non-profit delivery of publicly funded services are often accused of thereby endorsing the private finance of those services. But there is no necessary equation of the two. A high proportion of private or non-profit provision is perfectly consistent with a high proportion of public funding – as the continental European countries illustrate.

A more sophisticated criticism particularly of private (as distinct from non-profit) provisions arises from a distrust of providers’ motives. This is the fear that, in their drive for profit, unscrupulous providers will use their superior knowledge or monopoly position to exploit service users. But this is a problem that also afflicts public provision.

Anyone who has read the investigative reports by the Commission for Health Improvement on the behaviour of some NHS community trusts will need little convincing that the public sector can be deeply exploitative of users. Nor does the public sector have a monopoly on public service ethos. For example, there is evidence to show that many private providers of nursing home services are just as dedicated to the welfare of their clients as public ones.

In fact, more generally, the critics of market provision ignore the problems with the alternative models of public service delivery. These alternatives are basically of two kinds. One is command and control, where delivery depends on instructions provided through a managerial hierarchy. Incentives to perform are essentially punitive, such as threats to job security and tenure.

The other is the currently fashionable ‘network’ model, where service delivery is undertaken by qualified professionals, often operating in a network of some kind, who are essentially trusted to make the right decisions. The emphasis is on social relationships, rather than on hierarchical ones (as in command and control),
or on those based on impersonal economic exchange (as in a market).

Each of these models can deliver – if the conditions are right. Command and control can work if the task is simple and the method of achieving it is mechanical and well known – and if the punishments are harsh enough. It must also be easy to monitor both the task itself and individuals’ contributions to the overall task. It is not accidental that armies are run by command and control, since the situations they find themselves in usually meet these conditions.

But for most other public services, the conditions are not met. The task is not simple and neither it nor staff are easily monitored. Moreover, command and control models generate problems of their own. They depress staff morale, and stifle individual initiative. The quantity and quality of service provided is low, as is productivity. Monitoring systems put in place to try to counter these effects encourage staff to pay attention only to those things that are monitored (and then only sufficiently
to get by).

Network models can work in conditions where command and control does not. In particular, if monitoring is difficult, trusting providers to deliver sometimes seems to be the only practical alternative. But these models also have their weaknesses, including high set-up costs, long-term instability, the opportunities they offer for corruption and the protection they can provide for under-performance. The last of these is particularly worrying; in a network model, if providers betray their trust and put their own interests before those of users, there is no come-back.

So, in theory at least, all systems of public service delivery have their problems. So, to judge which is the best, or the least bad, we have to rely on empirical evidence. And the more systematic of this tends to support market or quasi-market models. As my LSE colleague Howard Glennerster has shown, over the past decade British primary schools have been subject to a variety of competitive pressures; partly as a consequence they have dramatically improved their performance. After 30 years of stagnation, the proportion of pupils at age eleven reaching a given standard in maths has risen from 45 percent to 70 percent. In international comparisons of literacy, maths and science, British schoolchildren are now regularly outperforming European and North American equivalents.

There is similar evidence in health care. During the period of the NHS internal market, measures of productivity (admittedly crude) increased; following its abolition, productivity fell. The most market-like of the reforms – GP fundholding – brought down both prescription costs and referral rates. Also, Carol Propper and colleagues at the University of Bristol have shown that competition between hospitals reduced costs, but, more disturbingly, may also have reduced quality. However, they argue that the reduction in quality arose because purchasers ignored quality in their contracts, concentrating only on costs. The lesson they draw is that competition is indeed a powerful force for changing behaviour, but that it has to be properly harnessed to ensure desirable outcomes.

All in all, the hard evidence suggests that – properly designed – markets and quasi-markets work better than the alternatives in delivering public services. But I suspect it will take more than evidence to convince some of their more ideological critics, whose minds sometimes seem set against competition and markets in whatever context. So we market advocates will have to put
up with the assaults they make and try to like it. Maybe it’s time for the violins after all.

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Julian Le Grand

is Richard Titmuss professor of social policy at the London School of Economics

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